I have recently been offered (verbally, with written to come soon) a summer internship position with a small company based in the US. I was told that rather than being a direct employee of the company, I would be hired as an independent consultant.

I understand that there are a variety of implications to consider (benefits, tax, etc) but I'm not really sure of the specifics. My main concern is comparing this offer to others I have received that will make me an employee rather than a consultant. This leads to two related questions:

What do I need to know/consider when comparing consultant and employee positions?What do I need to know/consider when evaluating an offer for a consultant position?

2 Answers
2

For the specific tax and legal implications, I would consult a qualified legal or financial professional, as regulations vary from state to state and country to country.

What do I need to know/consider when comparing consultant and employee positions?

In general terms, the difference is instead of employing you, the hiring organization is paying another company for the services of a person (you). You will need to create a new company then invoice the hiring company for your services. You will need also to pay yourself from the company, handling your own benefits (e.g. 401K/superannuation) and tax. You may be responsible for your own insurance, training and some resources (e.g. computer, software, stationery). Consultants are usually paid an hourly or daily rate instead of an salary. You do not get paid for leave.

The benefit to the hiring organization is they have less administrative work. It has certain accounting and metric benefits (counts as an expense instead of a headcount) and you are often easier to fire (the contract is usually for a limited time and needs to be renewed afterwards).

The advantage to you, the employee/consultant, is the pay is usually much higher to offset the extra administrative work and risk. If you are getting this position through a recruitment agency, they may be able to handle the administrative work for you in return for a small portion of your salary. The intellectual property restrictions are often lower, allowing you do to your own work on the side if you want.

The disadvantage to you is your remuneration is often proportional to your negotiation skills. You also need to be prepared to be let go at any time and be excluded from promotions or different roles.

From my limited experience, I would say this is an unusual offer for an internship style role. Many companies have a large contracting/consulting budget and use that for contingent staff but this is usually for more experienced staff that may not be needed once the project is complete. For an internship, there may be legal requirements about what constitutes an "internship" (e.g. it having some educational value) and this may be a way to circumvent that. There is also a lot of administrative work in setting up a company and this may be excessive for a short internship.

What do I need to know/consider when evaluating an offer for a consultant position?

That would depend on the specifics. Apart from the job specifics common to every role (e.g. what would you be doing, who you would be reporting to), you need to balance up:

The hourly/daily rate.

Intellectual property considerations (How much of what I produce does the company own? Can I work on my own projects on the side?)

Overtime (If I am called in on the weekend or work extra hours, do I get paid extra?)

Administrative overhead (Do they have an automated system for invoicing? How long until I get paid?)

I have been a contractor/consultant for over a decade. Ackton's response is very thorough.

The company engaging your services will very likely have a contract for you to sign. If you don't want to hire a lawyer to take a look at it, you need to read it very carefully, as they may try to put in clauses that are unreasonable for a contractor/consultant position.

Specifically non-compete clauses. They may try to prohibit you from working in a competitor's company (or in related businesses) for a length of time. If you believe that to be unreasonable, strike the clause before signing.

You will have to set aside money to pay your taxes as they will not do any withholding. If you are based in the US, you'll get a 1099 form at the beginning of the year that you will need to claim as income (in accordance with current tax laws).

You don't have to set up your own company, but you will benefit from setting up a Sole Proprietorship (at a minimum).

As a contractor, you will be paid by the hour. Make sure you and they understand that you will be paid for every hour that you work. You can possibly negotiate for a higher rate for any hours worked more than 40 (tradesmen and unions negotiate 1.5x the hourly rate for overtime, and some unions get 2x the hourly rate for the entire week if someone works 7 days in a row).

Do some research about wage ranges for your position in your location so you have some foreknowledge and can negotiate from a good position.